Financial supervisor severely criticizes draft budget amendment

PHILIPSBURG – The board financial supervision (Cft) has expressed severe criticism about the draft amendment to St. Maarten’s 2018 budget. In a ten-page letter to Finance Minister Perry Geerlings Cft-chairman Raymond Gradus identifies no less then twelve issues that require adjustment. The supervisor’s main conclusion is that the amendment does not meet the requirements of the kingdom law financial supervision.

From the Cft-letter it appears that the government is dragging its feet with the completion of adjustments to the casino fee legislation. Because these adjustments are not in place, the government is unable to collect 3.15 million guilders from the casinos this year. In the amendment the projected income from casino fees has been reduced from the earlier budgeted revenue of 3.15 million to zero.

The Cft urges St. Maarten to finalize the adjustment to facilitate the collection of this revenue stream in 2019.

The concession fees from government-owned companies are also a point of concern. The budget projects 12.1 million guilders in revenue from Gebe (5 million), the Port (5.2 million) and Bureau Telecom and Post (1.9 million).

However, the Cft notes that up to September “not a single concession fee, in full or in part, has been paid.” The accruals-based accounting system allows entering revenue in 2018 that will be paid the following years. “But in that case there must be sufficient guarantee that the commitment can be met,” the Cft-letter states. “Considering the extraordinary events due to Hurricane Irma and its impact on these companies it is important to implement a payment plan or, if necessary, to lower the projected revenue.”

The budget includes a line item of 6.8 million guilders for doubtful debts; this could cover around 56 percent of the concession fees if no money is coming to the government coffers from these three companies.

The financial supervisor is rather alarmed about a spectacular increase of expenditures in the last four months of the budget year. Up to August, expenditures remained 26.3 million guilders below budget, based on the monthly financial reports. But the amendment shows that by year’s end expenditures will be just 5.5 million below budget.

On average expenditures remained 3.3 million below budget per month up to August; maintaining this pace for the rest of the year would have resulted in 39.6 millions in savings. Because expenditures will remain only 5.5 million below budget, this implicates a large increase (of 34.1 million) over the months September to December.

The amendment mentions two cost-cutting measures, but the first one is still up in the air: the voluntary 10 percent decrease of the remuneration for ministers and members of parliament. “St. Maarten announced this measure already in June but the government still has to obtain the voluntary approval from ministers and members of parliament,” the Cft points out.

The supervisor asks minister Geerlings in its letter when the Council of Ministers will take a decision about lowering the remuneration for ministers and members of parliament and how it will achieve that parliament also takes a decision in a timely manner.

The second cost-cutting measure is to cap the expenditures per ministry based on existing legislation. However, the Cft points out, the amendment shows that the expenditures per ministry will increase by 300,000 guilders.

The Cft is not happy with St. Maarten’s intention to include line items in the capital budget for investments that will (possibly) be financed through the World Bank trust fund. The supervisor asks the government to include only investments that will not be financed with money from the trust fund.

The budget amendment however includes an investment of 18 million guilders for the first phase of the construction of a sanitary solid waste treatment plan. In this context it is noteworthy that the director of the American company Enviropower recently said in a parliamentary committee meeting that – if his company gets the project – St. Maarten only has to bear the cost of operating the landfill. Those costs are around 5 million guilders.

The Cft has a different argument against the 18-million guilders line item. “Waste processing has been identified as a priority for the reconstruction of St. Maarten. The Cft considers mixing investments through the capital budget with reconstruction-investments that will be financed through the trust fund undesirable.”

Lastly, it has not escaped the Cft’s attention that the country’s budgeted contribution to the Dutch Quarter sewage project is not in line with European subsidy conditions. The 10th European Development Fund (EDF) contributes 10 million guilders to this project on the condition that St. Maarten pays 3.3 million. The capital budget projects only 2.6 million and therefore the Cft advises the finance minister to bring this post in line with the EDF-conditions.

When the draft amendment goes to parliament it has to include the Cft-advice as well as an explanation by the government up to which point it has made adjustments to its proposal based on the advice.